11.05.2013 1

New report shows way to end sugar subsidies

IPI_Sugar_SubsidyBy Rick Manning

Ending sugar subsidies makes sense if done the right way.

The right way is to create a pathway for ending the subsidies that allows the U.S. sugar farmers and industry to compete in a free and open marketplace, winning or losing market share based upon their own skill, innovation and business savvy.

The Institute for Policy Innovation (IPI) has published a new, provocative report entitled, “Solving the Sugar Subsidy Problem,” tackling this timely dilemma head on with realistic policy recommendations.

The IPI report cites the sugar trade distorting practices of the Brazilian, Mexican and Thai governments, including subsidizing exports and keeping domestic prices artificially low.  These practices, along with those in more than one hundred countries, create market distortions that no one country can solve by itself.

Report author and president of IPI, Tom Giovanetti notes that the problem is not just with subsidies that other governments give their sugar industries saying, “Unfortunately, the U.S. government has no free market bragging rights.  It subsidizes its domestic sugar industry through a complicated maze of import quotas and loan programs.”

The inclination of many is to urge that the U.S. Congress take action by cutting through this maze asking the logical question, ‘If someone wants to dump cheap commodities on the U.S. market, shouldn’t we allow it, isn’t that good for the consumer?’

The IPI report answers this question by referring to the European Union experience with this approach, “… in 2006, the European Union was the second largest sugar exporter in the world, but in the few years after its 2006 sugar importation reforms, the EU became a net importer of sugar. After the 2006 reform, foreign producers dumped sugar into the EU, resulting in the closing of 83 sugar mills and the loss of 120,000 jobs in the EU sugar industry. Shortly thereafter, with domestic production drastically reduced, sugar prices climbed, EU consumers were paying 20 percent more for foods containing sugar, and shortages were reported.”

The EU experiment demonstrates what is guaranteed to happen should the United States effectively unilaterally disarm in the international sugar trade wars.  With worldwide subsidies in more than 100 countries, a more comprehensive solution is needed that doesn’t destroy U.S. sugar production.

The IPI report addresses this challenge by calling on the Obama Administration to engage the World Trade Organization working toward eliminating subsidies and trade barriers for sugar and other agricultural commodities.

Rather than simply eliminating U.S. sugar subsidies, the report urges the Administration to use the WTO to eliminate all anti-competitive trade barriers around the world allowing U.S. sugar producers to compete on a level playing field.  This would allow the market to truly determine winners and losers rather than governments that manipulate those markets.

An Americans for Limited Government Foundation report by Dr. Mark Hartley of the College of Charleston released earlier in 2013 explained how a desirable WTO solution would work, “Under this approach U.S. officials would push for zero subsidies abroad while using the promise of zero subsidies at home as incentive. As proposed, a zero for zero sugar policy would lift restrictions and tariffs on trade between all players in the global sugar market and would target market-distorting policies, including direct and indirect subsidies.”

Giovanetti comes to a similar conclusion that it’s in the best interests of the U.S. to have a vibrant, competitive domestic sugar industry that doesn’t rely on government subsidies arguing that to accomplish this goal, our country needs to find a third way rather than getting caught up in standard “free trade vs. fair trade” or “subsidies vs. no subsidies” debate.

The Obama Administration bringing the sugar issue to the WTO is the best hope of creating what Giovanetti calls a “free and functioning global market for sugar.”  A market that would allow producers to compete, and consumers to benefit from that competition, would also stabilize the sugar market as a whole.

Ending sugar subsidies the right way should be a true win/win solution that everyone could support.

Rick Manning (@rmanning957) is the vice president of public policy and communications for Americans for Limited Government.

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